The fiscal cliff is no longer a threat. But that new ‘slope’ I’m not so sure about…
So, as we’ve been expecting, we saw extensions to the JobKeeper program and the JobSeeker supplement this week.
The danger here was that we were tilting towards a fiscal cliff, with the massive JobKeeper and JobSeeker programs set to disappear suddenly at the end of September.
Given many economists think this is pretty much what’s keeping the Australian economy together, the fiscal cliff was a scary prospect.
But we learnt this week that JobKeeper and JobSeeker will be extended. So there’s no fiscal cliff.
However, they are now going to ‘taper’ – become less and less generous as we go forward.
That means that while we’re not looking at a fiscal cliff, we are looking at a fiscal ‘slope’.
So that raises the question, ‘just how steep is this slope’?
Kinda steep, actually.
So in terms of JobKeeper, we’re currently talking about a flat $1500 per fortnight that’s going out to 3.5 million Aussies. That’s about 30% of the workforce, so you know, pretty massive.
JobKeeper is now going to be extended until March, but we’re going to a new 2-tier system. In the December quarter, people working more than 20 hours a week will get $1200 a fortnight, while people working less than 20 hours will get $750 a fortnight.
In the first quarter of 2021, the payments will be reduced again, to $1000 and $650 respectively.
The government is also predicting that the number of people receiving JobKeeper will fall from 3.5m to 1.4m in the December quarter and to 1.0m in March.
In terms of the JobSeeker COVID supplement, that is currently worth $550 a fortnight, taking the total JobSeeker payment to over $1100. Going forward, the supplement will reduce to $250 in September, and probably further later in the year.
Again, the government hopes that the number of people receiving it will steadily reduce as well.
Now, while this helps us avoid a fiscal cliff – a sudden withdrawal of much needed government support for the economy – we are still talking about a substantial and quick reduction in support.
Specifically, the two extensions announced this week are estimated to be worth about $20 billion.
However, the first round of spending, from D-Day to the end of September, was worth about $100 billion.
Very serious cheese.
That means we’re still talking about a fiscal cliff – sorry, slope – of something like $80 billion in the December quarter alone.
To me, that looks like a dangerously steep slope.
The bet that the government is making here is that the economic recovery will have enough momentum by then to allow the government to withdraw that $80 billion of support without too much fuss.
I’m not sure I’d be taking that bet.
And with one of our most economically powerful states, Victoria, going deeper into lockdown day by day, we’re really going to need to see things turn around pretty quickly.
So the situation remains fluid.
The fiscal cliff is no longer in play.
But there’s still a very slippery slope.